Equipment Company had no right not to renew dealer agreement: Appeal Tribunal

In 1987, CFEI became a dealer with Ford New Holland Inc., CNH's predecessor. In June 1999, Ford New Holland sent CFEI a letter advising that it would not renew the existing Dealer Agreement and that it would terminate effective December 31st, 1999. Ford New Holland then offered CFEI the opportunity to continue as a dealer under a new Dealer Agreement.  The new Dealer Agreement created a one-year renewable term. The term renewed automatically unless either party gave at least ninety days written notice of its intention not to renew.

Both the 1987 and 1999 version of the Dealer Agreement are very similar. Both Dealer Agreements are standard form contracts drafted by the farm implement manufacturer. CFEI had no opportunity for input into any of the terms. The reality for CFEI was that if it wished to be a CNH dealer, it was obliged to sign the standard form Dealer Agreement without any changes.

In late September 2006, CFEI received a letter from CNH dated September 30th, 2006 advising CFEI that CNH would not renew the Dealer Agreement at the end of 2006.  That letter explained that CNH based its decision not to renew on "serious breaches" of the Dealer Agreement.  That letter also explained that CFEI had failed to "achieve and maintain a reasonable market share" during the previous four years. The letter included a chart giving an illustration of CFEI's performance in select product categories.

CFEI challenged the non-renewal of the relationship before the Agriculture, Food and Rural Affairs Tribunal pursuant to the Farm Implements Act.  The parties characterized the end of the relationship differently. CFEI characterized it as a termination while CNH characterized it as non-renewal. Regardless of the characterization, the practical result was the same, the end of the business relationship.

Section 35(c) of the Act provides that the Minister of Agriculture, Food and Rural Affairs may make regulations prescribing information to be included in a dealer agreement and setting out legal rights and obligations for parties to the agreement.  The Minister prescribed Ontario Regulation 123/06.  The Regulation came into force when filed on April 25th, 2006.  The Regulation created mandatory terms that must be included in any dealer agreement and that the Regulation deems are part of any dealer agreement. The Regulation provides that any provision in a dealer agreement contrary to the prescribed mandatory terms is void.

The Appeal Tribunal found that, despite any contractual wording to the contrary, CFEI has a prescribed right to renew the Dealer Agreement by giving CNH that written notice. Both counsel agreed that in this case the Dealer Agreement itself, which contemplated annual "auto-renewal", would satisfy the requirement from the Regulation for written notice. It was clear from the Dealer Agreement that the annual term starts January 1st and concludes December 31st.  While CNH had a contractual right not to renew the annual term before April 25th, 2006, the effect of the Regulation was to remove CNH's contractual right not to renew from paragraph 22 of the Dealer Agreement. The Regulation replaced that right with a regulated approval. Therefore, beginning April 25th, 2006, CNH no longer had any right not to renew the Dealer Agreement.

The consequence flowing from CNH's liability remains to be determined in the second phase of the proceeding.

Read the decision at: Chesterman Farm Equipment Inc. (CFEI) vs. CNH Canada Ltd. (CNH).